Made in China – No More

The state of China’s economy is something which is little talked of in the US. China does an amazing job of quieting news in their country so their own people have no idea what is happening to them. Last January in response to international pressure to “protect” workers the Chinese government unionized an entire country. A single bill passed through the government designed to give workers rights.

Unlike the US there was no controversy or discussion, just acceptance of a people totally controlled. Also unlike the US there are no union bosses, only contracts and government enforcement to protect the people. When I heard of it I told the business man I worked with that the law would backfire because jobs would be lost, he looked at me with a confused smirk.

In the past, China had been booming with double digit growth and skyscraper and housing construction everywhere you looked. From 5 years ago to today the number of cars have tripled in some cities, cell phones and televisions are everywhere. On my last trip, I noticed the cranes had all but disappeared, litter was scattered in the streets of the small town our factory is in and thousands more people were milling around the streets talking.

Dozens of huge new Factory’s around ours are empty, no production inside so I asked some people about the economy. The response was a bit surprising, “not too bad” came the answer.

“What happened to all the cranes and construction?”, I asked.

“Still have them” Was the broken english answer. “Construction increased by only 18% per year instead of 25% like before. It’s somewhere else.”

I can tell you that the construction has vanished. I don’t believe It is just somewhere else. When you spend as much time as I have looking at the countryside in this land as I have it is very easy to say that there used to be cranes everywhere. The amount of building going on one year ago was huge, everywhere you drove or looked there were cranes. Our sales director counted 25 cranes in one field of view less than a year ago today there is very little 1 or 2. Perhaps the cranes are fixing earthquake leveled cities but something happened for sure.

On my trip, I learned something else, more than 5000 factories have closed in the city we manufacture in. But that’s not all, across China more than 65,000 factories have closed this year alone. A typical factory has 500 to 3000 people working there so we are looking at about 150 million jobs lost. These jobs went to all our other favorite countries like VietNam and Pakistan. If you don’t believe me check the labels on your clothes next time you’re shopping.

The news doesn’t just apply to factories. Two of three large trading companies which were set up to broker products to the international market have closed their doors in a building we use for office space. Occasional reports of hotels loosing business and partly empty flights were further evidence of a serious crisis. China also released something like a 500 plus billion us dollar stimulus package, $350/person is very large considering that the far west of china might make $1000/year per person.

All this yet the newspapers are still talking growth. China doesn’t track unemployment officially so there is no big report of lost jobs. There is little no public discussion of what is causing the problem or even that it is a problem, the people can’t and aren’t informed enough to try. They are very limited in their world knowledge, something I found amazing because I always figured people would find a way to get the information — nope.

The rules for the new labor law work something like this. There is a new minimum wage for workers, unlike the US law where minimum wage is so low it means nothing. The China law increased wages and added some taxes for social security so that workers in our factory now cost $2.5/hour. A substantial amount of money in China.

The workers must be hired by contract using a minimum monthly wage – not hourly. If a worker gets fired for any reason you must pay about 1/4 -1/3 the value of the contract. There is no direct limit on the contracts for time except for the third contract must be nearly a lifetime contract. This forces the first contract to be for at least a year because you don’t want to get to the third one too fast. This also forces factories to let go of their employees after the second contract.

Workers can skip work or get in fights, if you fire them you pay 1/3. Well in most socialist countries a bunch of stuff happens under the table, now in China the workers will ask to be paid under the table to get more cash and if the factory agrees the worker will work for a year or two and then turn the factory in to the government so they can get the over the table benefits they are entitled to.

Our factory was new to the change in law and over hired in January, we have 50% more labor than we need. I was contacted in October with a 40% price hike. After my last trip we straightened it out by letting go half the workers and management but we were forced to wait until the contracts ran out. Don’t worry about the workers though, they still make a substantial fraction of their working wage through checks from the government. They are now being paid by China to not work, just like our auto unions in the US. This won’t last long.

This is the socialist utopia that Democrats are pushing on us. If they push the unions to have public ballots rather than anonymous private ones, union thugs will be able to find dissenters and “have discussions” with the members. There is no other reason for removing of the private union vote than to give the unions power of coercion.

In China there is no discussion of repealing the union style labor law that is destroying their country that I am aware of. In the US the discussion revolves dieing around the auto industry, democrats want to make bailout payments which are nothing more than thank you money to the unions. Clearly these workers compensation packages cannot be supported by the industry, they need to give up a substantial portion of their pay and benefits if they want to keep any at all. Car companies cannot pay $50-$70/hr in pay and benefits for unskilled labor. They also need the flexibility to dynamically scale the size of the company according to sales. Without that any change in sales creates surprise costs.

Unless China repeals their labor law, this country will spiral ever downward. The democrats should watch carefully though because this is a perfect example of the result of the kind government destroying an economy in the name of helping the poor workers. In the meantime these factories have moved to even more popular countries like Pakistan and Vietnam, countries who’s poorness is also derived directly from socialist government policies.

America has really lost sight of what made us great. The lack of government interference. If you don’t work you don’t eat, if you do work and succeed you can get rich. This is what gave us our massive productivity, not wars, not unions and certainly not government. The politicians are winning, a piece at a time they have taken freedoms and expanded government. One percent of America is in prison right now, police are everywhere, taxes are at record levels, children are being taught the benefits of socialism in school with a generation of liberals taking power now, the economy is dieing and politicians are grabbing ever more.

When we become like China, Venezuela and eastern Europe will it stop or will we learn before it’s too late. It will be interesting to watch China though to see if they return to the free market labor style that made them so much money.

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This entry was posted on November 29, 2008 at 2:37 pm and is filed under Uncategorized.
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3 Responses to “Made in China – No More”

John F. Pittmansaid

A most interesting post. China may have planned for success and not planned for failure. That is a hallmark of a controlled economy. The question is whether they can become consumers of their own production, and yet keep enough foreign sales to keep the economy on an even keel. I think they will be able to do it. Though that law does look like a real economic dead weight.

One of the future economic battles is going to be over the role that regulation is used to moderate the “business” cycle. The Democrats seem to be resurrecting Keynesian economics for their stimulus package. However, if they add the burden of taxes (read CO2 taxes), they violate the assumption of priming the pump at the best coarse rate. This comes from the modern Keyesian camp after stagflation brough the US economy to its knees at the end of Carter and beginning of Reagan’s first term. The modern K theory is that the government is only capable of coarse fiscal policies, and monetary policies have their place. However, Kerry, if correct, would indicate that despite the massive influx of government fiscal and monetary input, we can expect it to be much less effective. One of the reasons is a potential mismatch of the US government’s policy and the Federal Reserve’s policies. For this priming to work, there will have to be an acceptance of inflation. Will the Fed be willing to accept this inflation, especially if it has a CO2 tax induced fever? The CO2 tax proposals I have seen, are enough to wreck a good economy with inflation. What will they do to a weak economy using Keynesian economics to work?

Chris Hsaid

Over here in the UK, I read that the market for recycled paper has evaporated (it costs more to recycle than it will sell for). The reason given (who knows if it is right) was that (because of the recession) Chinese factories are no-longer manufacturing so many products, and therefore the cardboard boxes needed for these products (which are made from recycled paper) are not needed either.

Mike Osaid

China
Plans in 5 year cycles – 15 years ago they came up with 3 five year plans –
The main idea of these 3 five year plans is to sell to the rest of the world
keeping prices lower than any other country – while keeping outside business selling to China at a very low level if at all.
They are doing it big time